Insights
Insights for smarter expense management
Practical tips, user stories, and financial strategies that help you track expenses, organize your finances, and make better spending decisions.
Insights
Practical tips, user stories, and financial strategies that help you track expenses, organize your finances, and make better spending decisions.
Mental Accounting: Why People Separate Money Into “Buckets” — And How Culture Shapes It
Humans don’t treat all money as equal. Even though €50 should always be €50, our brains label it, categorize it, and value it differently depending on where it comes from and what we think it’s meant for. This psychological process is called mental accounting, a term introduced by Nobel Prize–winning economist Richard Thaler. It describes how people separate finances into “buckets”—rent money, grocery money, holiday money, savings money, “fun money”—even when doing so is not financially optimal.
What’s even more fascinating is how culture shapes these mental buckets. Across the world, households develop different habits, strategies, and emotional rules for how money should be handled. Mental accounting is universal—but the way people do it varies dramatically.
From a psychological perspective, mental accounting helps reduce complexity. Money is abstract and overwhelming; splitting it into categories gives us a feeling of control. Instead of dealing with one big pool of income, we deal with smaller, more emotionally manageable segments.
Three main psychological drivers shape mental accounting:
People feel more emotional “pain” when spending money meant for essentials (rent, bills) than money labeled as “fun.” Buckets allow us to protect what matters.
We fear losing savings far more than we value gaining the same amount. That’s why many people refuse to spend their “emergency” money even when the emergency has arrived.
Money is not just informational—it’s emotional and cultural. Separate buckets support our identity: “I’m responsible,” “I’m generous,” “I’m a saver,” “I’m a good parent.”
Mental Accounting Around the World
Every culture organizes money differently. Some societies rely on strict envelopes and traditions; others focus on flexibility. Here are a few examples:
Japan has one of the oldest budgeting traditions in the world. Kakeibo is a handwritten household ledger system dating back to 1904. It encourages families to divide money into categories such as:
The cultural value of minimalism and intention makes mental accounting highly structured in Japanese households.
In India, it is extremely common for households to maintain different bank accounts and cash stashes for different goals:
Because large life events are communal and expensive, strong mental categories protect long-term commitments.
Even in 2025, many families in Eastern Europe practice physical cash envelope budgeting, a legacy of decades of economic instability. Common envelopes include:
The cultural logic is simple: if the money is physically separated, you can’t accidentally spend it.
Americans often use modern systems influenced by financial literacy trends:
Because credit cards are heavily used, categories act as psychological brakes—without them, overspending is more likely.
In Norway, Sweden, and Denmark, budgets often center on long-term goals:
The culture emphasizes planning, security, and financial transparency—less about strict categories, more about long-term outcomes.
In countries like Mexico, Colombia, and Brazil, mental accounting often includes:
Money categories reflect strong family networks and irregular income patterns.
Many households in countries such as the UAE, Jordan, and Saudi Arabia separate money according to:
Cultural and religious norms shape how money must be treated, making the “buckets” both financial and moral.
What All Cultures Share
Despite the differences, mental accounting has three universal features:
Every culture creates buckets to ensure food, housing, and education are secured first.
Whether it’s kakeibo, envelopes, or digital sub-accounts, the ritual makes saving feel real.
People everywhere guard certain categories fiercely (emergency savings, children’s funds) and treat others more freely (gifts, holiday money).
So—Is Mental Accounting Good or Bad?
It depends.
Used wisely, mental accounting becomes a powerful tool—not a trap.
Final Thought
Whether through handwritten kakeibo, envelopes in Eastern Europe, digital sub-accounts in the U.S., or cultural savings rituals in India and the Middle East, one thing is clear: humans separate money because it helps them feel secure, organized, and in control.
Mental accounting is not just psychology—it is tradition, culture, and identity expressed through the way we handle money.
Financial anxiety is one of the most common forms of modern stress.
Research shows people are more likely to skip financial information when they expect the outcome to be unpleasant. In the moment, ignoring feels easier. But it quietly creates long-term damage.
This isn’t laziness or irresponsibility. It’s psychology.